FORM 10-KSB-A1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 33-12029-D
IDIAL NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
formerly
Desert Springs Acquisitions, Corp.
Nevada 84-1043258
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
16990 Dallas Parkway Suite 106, Dallas, Texas 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 818-1058
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Yes[X] No[] (Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.)
Not[] (Indicate by check mark whether if disclosure of delinquent filers
('229.405) is not and will not to the best of Registrant's knowledge be
contained herein, in definitive proxy or information statements incorporated
herein by reference or any amendment hereto.)
As of December 31, 1999, the aggregate number of shares held by non-affiliates
was approximately 15,465,133 shares. Due to the limited market for the Company
securities, no estimate is being supplied herewith of the market value for such
securities.
As of December 31, 1999, the number of shares outstanding of the Registrant's
Common Stock was 18,542,500.
Exhibit Index is found on page 17
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PART I
UN-NUMBERED INTRODUCTION
This amended Form 10K-SB is filed to correct Item 4 of Part I as follows:
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Certain matters were submitted to shareholders and approved on December 21,
1999.
(1) To Ratify and Approve that certain plan of reorganization and
acquisition, Dated November 30, 1999, by which this corporation would acquire
Woodcomm International, Inc., a private Corporation, for issuance of 16,000,000
new investment shares of common stock.
(2) Approve filing of "Shelf Registration Statement" for issuance of up to
2,000,000 shares of common stock at offering price of not less than $3.00 per
share.
(3) Approve and Authorize a change of the corporate name, and change of
situs of the Corporation from Colorado to Nevada, as a part of this
Reorganization, to become and be iDial Networks Inc., a Nevada Corporation, or a
substantially similar name as may be available in Nevada.
(4) Re-Elect and empower the present Directors to appoint a new Board of
three, effective upon closing the transaction mentioned in Proposals Numbers
1-3, to then consist of the following three (3) Directors, to serve until the
next Annual Meeting of Shareholders or until their successors are elected and
qualified: Mark T. Wood, Klaus Scholz, and Edward Janusz.
In all other respects, this filing is unchanged.
ITEM 1. DESCRIPTION OF BUSINESS
(A) HISTORICAL INFORMATION. Desert Springs Acquisition Corp. (the "Issuer",
the "Company" and sometimes the"Registrant") is a Colorado corporation (formerly
Bartel Financial Group, Inc) ("BFG Colorado") organized October 3, 1986, as WTS
III Capital Corporation ("WTS"). WTS conducted a public offering of its
securities pursuant to a Registration Statement filed with the Denver Regional
Office of the Securities and Exchange Commission ("SEC") which was effective on
August 11, 1987, under the Securities Act of 1933. The offering closed after
receipt of the maximum proceeds of $300,000. On October 7, 1987, WTS acquired
100% of Bartel Financial Group, Inc. ("BFG Utah"), a Utah Corporation in
transaction commonly characterized as a "reverse acquisition".
On July 11, 1995, pursuant to authority granted by shareholders at the
Special Shareholders Meeting of October 28, 1994, the Board of Directors
resolved as follows: The Officers were empowered and directed to effectuate a
200 for 1 reverse split of the Company's Common Stock; provided that no
shareholder shall be reduced to less than 10 shares as a result thereof.
Following the 200 to 1 reverse split, and as a result thereof, the existing
138,100,000 shares issued and outstanding were reduced to 690,500 shares. The
Officers were further empowered and directed to change the name of the
Corporation to Desert Springs Acquisition Corp.
On September 18, September 28, and October 7, 1995, respectively, the
Issuer entered into certain Financial Service Agreements. Attention is directed
to the Exhibits furnished with Quarterly Report on Form 10-Q dated September 30,
1995, December 31, 1995 and March 31, 1996. These agreements were the subjects,
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respectively, of three successive filings resulting in the Registration of
1,252,000 shares of common stock on Form S-8, pursuant to the Securities Act of
1933. No change of control of the issuer resulted from the registration or
disposition of the Securities registered on Form S-8.
(B) THE REOGANIZATION. On December 23, 1999, the Company completed a reverse
merger with IDial Networks Inc., formerly Woodcomm International Inc., an
Internet based Telephony Services company. The Company subsequently changed its
name to Idial Networks, Inc. and changed its symbol to IDNW.
(C) SUMMARY OF SIGNIFICANT EVENTS FOLLOWING REORGANIZATION. As a result of the
foregoing transactions, as of the date of this Annual Report, the Issuer had a
single class of securities, namely common equity voting stock, 50,000,000 shares
(of par value $0.001) authorized; of which 18,542,500 shares were issued and
outstanding.
(D) THE BUSINESS OF REGISTRANT AND ITS SUBSIDIARIES. The Company is an
established Application Service Provider (ASP) of Internet Protocol (IP)
Telephony communications. Through a reverse merger in December 1999, the
company became publicly traded with the symbol (OTCBB:IDNW). Our web address
is www.idialnetworks.com
The Company competes in a business sector known as Voice Over IP (VoIP),
which is experiencing explosive growth and is projected to reach $60 billion in
revenues by 2005, according to Ovum Research. The Internet phenomenon
continues, with International Data Corporation projecting nearly 400 million
global users by the end of 2002. E-Marketer estimates that 9.4 billion e-mail
messages are delivered daily, and TeleGeography projects the international long
distance market to grow to $79 billion by the end of 2001, comprised of 143
billion minutes of LD calls. All these factors have enabled the more efficient
VoIP technology to begin to change the face of global communications.
The Company has integrated the economics of VoIP technology with the
convenience of conventional telephony to enable web initiated telephone
services. With this iDial technology, the company is able to offer consumers
and businesses telephony services at costs approaching the wholesale rates of
carriers. Unlike some competitors who offer PC to phone services, iDial's web
based services are provisioned via the Internet but all calls are made phone to
phone. The majority of PC owners does not have microphones and telephony
software and thus prefer the more familiar telephone for verbal communications.
When the market dictates, iDial will offer PC to Phone and PC to PC telephony
services.
The Company delivers high-quality traditional and VoIP telephony services
to consumers and businesses, with the following benefits:
LOW COST. Telephone calls are a fraction of the cost of traditional long
distance service.
HIGH VOICE QUALITY. We offer high voice quality by integrating
traditional telephony and packet-switching technologies.
EASE OF USE AND ACCESS. Designed for convenience and ease of access from
anywhere in the world, an internet connection and a standard Internet browser
such as Netscape or Microsoft Internet Explorer is all that is required.
Lacking an Internet connection, the customer may dial a toll-free or local
access number from any telephone or fax machine in the US to access our network
as well.
ONE-CLICK ONLINE CALLING. iDial services enable users to speak with
anyone worldwide with a single click of a button. On-line retailers could use
this technology to connect customers to sales representatives when browsing
their web sites and increase the likelihood of consummating the on-line sale.
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RELIABLE/FLEXIBLE SERVICE. The technologically advanced design allows for
the expansion of the network capacity by the simple addition of switches, and
the ability to seamlessly reroute traffic if problems arise.
EASE OF PAYMENT AND ONLINE ACCOUNT ACCESS. iDial customers are able to
make calls by opening a prepaid account using credit cards, wire transfers or
checks, and can access their accounts via the Internet to view their call
history, account balances, or to increase their prepaid amounts.
CUSTOMER SUPPORT. The company offers real-time customer support in
multiple languages, and the integrated billing and call management system
provides service representatives with immediate access to customer accounts.
(1) PRODUCT DESCRIPTION
The Company currently offers traditional prepaid phone cards and VoIP
services based on iDial technology under the following brand names for which
various trade and service marks are registered.
NetPhoneCard - Web initiated worldwide phone calls with US dial tone and
low tariffs.
SendaCall -Prepaid calls sent within a virtual greeting card by e-mail to
recipients anywhere in the world, allowing recipient to place free call to
sender.
PhoneMeNow -An iDial ecommerce tool. A PhoneMeNow button is placed on a
website that allows a customer to initiate a call to his phone from a
representative of the company that is hosting the site.
CellPhoneCard -Based upon ANI recognition of a subscribers cellular phone,
subscribers benefit from low international tariffs when nationwide calling is
included in the subscribers cellular rate plan.
HomePhoneCard -Based upon ANI recognition of a subscribers home phone, low
international tariffs available with a local access number.
CheapPhoneCard - Internet purchased phone cards for USA usage.
The company has additional VoIP products and services in development,
targeting specific business to business markets, as well as consumers. They
include:
Conference Calling with up to 8 participants
Low cost International callback service for Internet users outside the USA.
Web based International Call Center for use by iDial Call Center Agents who
will have complete virtual call center capabilities from their web connection
allowing web based call setup, billing and reporting.
Free PC to PC calls with H.323 compliant technologies like Microsoft
NetMeeting, and marginal fees to phones worldwide.
Service to Residential and Business customers throughout the US on a
direct, post paid and billed to your credit card service.
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(2) GROWTH STRATEGY
While a large number of VoIP companies have been formed in recent years,
most focus on the build out and development of international VoIP networks in
the effort to capture an ever shrinking high margin revenue base. Little
attention has been given to domestic VoIP with bundled service offerings. The
company believes that in this very competitive landscape, offering many voice
and data transmission options, leasing time (or purchasing minutes) on VoIP
networks will quickly become a commodity business, as the various competitors
whittle margins to gain growth and market share. It is imperative to not only
offer a quality, nationwide network but to also be an aggressive marketing
organization seeking to provide value added products and services.
The Company intends to leverage its position in the Internet telephony
market to make communications services readily available worldwide. Its strategy
includes the following key elements:
1) Drive Usage through Resellers and Strategic Partners. The
company will promote its services through direct sales and marketing and through
relationships with resellers and leading Internet hardware, software and content
companies. A primary strategy is to offer flat rate global long distance service
to cable subscribers in a partnership with leading cable operators.
2) Pursue Multiple Sources of Revenue. In addition to
minutes-based revenue, the company intends to pursue new Web-based revenue
opportunities from banner and audio advertising.
3) Enhance Brand Recognition. The Company intends to strengthen
and enhance its brand recognition by cooperatively marketing its Internet
telephony services with leading companies in other market segments.
4) Provide Unique VoIP Products and Services for Business to
Business. The company's current suite of VoIP products will greatly enhance the
e-commerce companies.
Many e-commerce sites have discovered the necessity of having a customer
service representative talk with potential buyers. However, traditional 800
numbers are still relatively expensive, and require some effort on the part of
the buyer to initiate the call. With iDial's "Phone-me-now" technology, a simple
click of a button will connect the buyer with the seller's representative at
very low rates. To further lower operating costs, the company is exploring
joint ventures with customer service centers in English speaking countries where
wages are lower, and thus customer service becomes more affordable to
e-commerce.
(3) TECHNICAL SUPPORT
The Company's network operations center is located at its corporate
headquarters in Dallas, with gateway equipment also located in Los Angeles to
serve the Asian market. Customer service is provided in several languages. As
the company increases its services and minutes sold, it plans to install
additional equipment in appropriate sites. The first stage of network expansion
projects gateways in New York and Miami, in addition to the Los Angeles
facility. The company will lease existing capacity in other locations until such
time as sufficient business is generated to warrant company owned switching
equipment.
The Company has deployed VoIP technology with leading manufacturers such as
Cisco Systems and Clarent, and contracts for carriage with major Internet
backbone suppliers such as Quest and Pacific Gateway.
The Company engineering staff consists of five software developers located
at the companys 90% owned Technology Center in Sri Lanka, as well as two Dallas
based technicians.
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(4) PROPRIETARY TECHNOLOGY
The Company uses a combination of its own proprietary software applications
and commercially available licensed technology to conduct Internet and telephone
routing operations.
The Company has developed proprietary software which permits a customer to
purchase a virtual calling card on the Web site using a credit card and to have
the virtual calling card account activated while on the Web site. Also
proprietary are various credit and fraud management applications which aid in
checking credit and limiting fraudulent transactions. Additionally, the company
has developed proprietary software that allows for the real-time provisioning of
customers on the network using a credit card and have immediate access to
multiple accounts and services serving the wireless and residential/soho
markets.
(E) FINANCING PLANS. For information, please see Item 6 of Part II MANAGEMENT'S
DISCUSSION AND ANALYSIS
(F) GOVERNMENT REGULATION. Congress has recently adopted legislation that
regulates certain aspects of the Internet, including online content, user
privacy, taxation, access charges, liability for third-party activities and
jurisdiction. In addition, a number of initiatives pending in Congress and state
legislatures would prohibit or restrict advertising or sale of certain products
and services on the Internet, which may have the effect of raising the cost of
doing business on the Internet generally. The European Union has also enacted
several directives relating to the Internet, one of which addresses online
commerce. In addition, federal, state, local and foreign governmental
organizations are considering other legislative and regulatory proposals that
would regulate the Internet. Increased regulation of the Internet may decrease
its growth, which may negatively impact the cost of doing business via the
Internet or otherwise materially adversely affect our business, results of
operations and financial condition.
The Federal Trade Commission has proposed regulations regarding the collection
and use of personal identifying information obtained from individuals when
accessing Web sites, with particular emphasis on access by minors. These
regulations may include requirements that companies establish certain procedures
to disclose and notify users of privacy and security policies, obtain consent
from users for certain collection and use of information and to provide users
with the ability to access, correct and delete personal information stored by
the company. These regulations may also include enforcement and redress
provisions. There can be no assurance that we will adopt policies that conform
with any regulations adopted by the FTC. Moreover, even in the absence of those
regulations, the FTC has begun investigations into the privacy practices of
companies that collect information on the Internet. One investigation resulted
in a consent decree pursuant to which an Internet company agreed to establish
programs to implement the principles noted above. We may become subject to a
similar investigation, or the FTC's regulatory and enforcement efforts may
adversely affect the ability to collect demographic and personal information
from users, which could have an adverse effect on our ability to provide highly
targeted opportunities for advertisers and electronic commerce marketers. Any of
these developments would materially adversely affect our business, results of
operations and financial condition.
The European Union has adopted a directive that imposes restrictions on the
collection and use of personal data. Under the directive, citizens of the
European Union are guaranteed rights to access their data, rights to know where
the data originated, rights to have inaccurate data rectified, rights to
recourse in the event of unlawful processing and rights to withhold permission
to use their data for direct marketing. The directive could, among other things,
affect United States companies that collect information over the Internet from
individuals in European Union member countries, and may impose restrictions that
are more stringent than current Internet privacy standards in the United States.
In particular, companies with offices located in European Union countries will
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not be allowed to send personal information to countries that do not maintain
adequate standards of privacy. The directive does not, however, define what
standards of privacy are adequate. As a result, the directive may adversely
affect the activities of entities such as us that engage in data collection from
users in European Union member countries.
State Laws. Several states have also proposed legislation that would limit the
uses of personal user information gathered online or require online services to
establish privacy policies. Changes to existing laws or the passage of new laws
intended to address these issues could reduce demand for our services or
increase the cost of doing business. In addition, because our services are
accessible worldwide, and we facilitate the sale of goods to users worldwide,
other jurisdictions may claim that we are required to comply with their laws. We
are qualified to do business California, Colorado and Texas only, and failure by
us to qualify as a foreign corporation in a jurisdiction where we are required
to do so could subject us to taxes and penalties for the failure to qualify and
could result in our inability to enforce contracts in such jurisdictions. Any
such new legislation or regulation, or the application of laws or regulations
from jurisdictions whose laws do not currently apply to our business, could have
a material adverse effect on our business, financial condition and operating
results.
Sales Taxes. We do not currently collect sales or other similar taxes for
virtual calling cards or other services sold through our Web site, other than
for virtual calling cards sold to Texas residents. However, one or more states
may seek to impose sales tax or similar collection obligations on out-of-state
companies, such as ours, which engage in Internet commerce. A number of
proposals have been made at the state and local level that would impose
additional taxes on the sale of goods and services through the Internet. Such
proposals, if adopted, could substantially impair the growth of online commerce,
and could adversely affect our opportunity to derive financial benefit from such
activities. Moreover, a successful assertion by one or more states or any
foreign country that we should collect sales or other taxes on the sale of
virtual calling cards or services on our system could have a material adverse
effect on our operations.
Legislation imposing a moratorium on the ability of states to impose taxes on
Internet-based transactions was passed by the United States Congress last year.
The tax moratorium will be in effect only for three years. The same legislation
that imposed the moratorium also established an Advisory Commission to consider
methods by which states could impose sales taxes on Internet transactions. If
the moratorium expires at the end of its three-year term, there can be no
assurance that the moratorium will be renewed at the end of such period. Failure
to renew the moratorium could allow various states to impose taxes on
Internet-based commerce. The imposition of such taxes could have a material
adverse effect on our business, financial condition and operating results.
(G) COMPETITION. The long distance telephony market and, in particular, the
Internet telephony market, is highly competitive. There are several large and
numerous small competitors, and we expect to face continuing competition based
on price and service offerings from existing competitors and new market entrants
in the future. The principal competitive factors in the market include price,
quality of service, breadth of geographic presence, customer service,
reliability, network capacity and the availability of enhanced communications
services.
Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we
have. As a result, certain of these competitors may be able to adopt more
aggressive pricing policies, which could hinder our ability to market our
Internet telephony services. One of our key competitive advantages is the
ability to route calls through Internet service providers, which allows us to
bypass the international settlement process and realize substantial savings
compared to traditional telephone service. Any change in the regulation of an
Internet service provider could force us to increase prices and offer rates that
are comparable to traditional telephone call providers.
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We believe that the primary competitive factors determining success in the
Internet and IP communications market are: quality of service, the ability to
meet and anticipate customer needs through multiple service offerings,
responsive customer care services, and price.
Future competition could come from a variety of companies both in the
Internet and telecommunications industries. These industries include major
companies who have greater resources and larger subscriber bases than we have,
and have been in operation for many years. We also compete in the growing market
of discount telecommunications services including calling cards, prepaid cards,
call-back services, dial-around or 10-10 calling and collect calling services.
In addition, some Internet service providers have begun to aggressively enhance
their real time interactive communications, focusing initially on instant
messaging, although we expect them to begin to provide PC-to-phone services.
Internet and IP Telephony Providers. Many companies provide, or are
planning to provide, certain portions of the complete communications solution we
offer, including Net2Phone, Delta Three, Gric, iBasis, Jens Corporation,
JFAX.COM, GlocalNet and Poptel.
Traditional Telecommunications Carriers. Several traditional
telecommunications companies, including industry leaders such as AT&T, Sprint,
Deutsche Telekom, MCI WorldCom and Qwest Communications International have
recently announced their intention to offer enhanced Internet and IP
communications services in both the United States and internationally. All of
these competitors are significantly larger than we are and have substantially
greater financial, technical and marketing resources, larger networks, a broader
portfolio of services, stronger name recognition and customer loyalty,
well-established relationships with many of our target customers, and an
existing user base to which they can cross-sell their services.
With respect to prepaid calling cards, we compete with many of the largest
telecommunications providers, including AT&T, MCI WorldCom, Cable & Wireless and
Sprint. These companies are substantially larger and have greater financial,
technical, engineering, personnel and marketing resources, longer operating
histories, greater name recognition and larger customer bases than we do. We
also compete with smaller, emerging carriers in the prepaid calling card market,
including Destia Communications, Inc., RSL Communications, IDT Corp., Pacific
Gateway Exchange, Inc., FaciliCom International, LLC, WorldQuest Networks, Inc.
and PRIMUS Telecommunications Group, Incorporated. We may also compete with
large operators in other countries. These companies may have larger, more
established customer bases and other competitive advantages. Deregulation in
other countries could also result in significant rate reductions. We believe
that additional competitors will be attracted to the prepaid card market. These
competitors include Internet-based service providers and other
telecommunications companies. Competition from existing or new competitors could
substantially reduce our revenues from the sale of these cards. A general
decrease in telecommunication rates charged by international long distance
carriers could also have a negative effect on our operations.
In addition, we compete in the market for Internet telephony services with
companies that produce software and other computer equipment that may be
installed on a user's computer to permit voice communications over the Internet.
Current Internet telephony products include VocalTec Communications, Ltd.'s
Internet Phone, QuarterDeck Corporation's WebPhone and Microsoft's NetMeeting.
Also, a number of large companies, including Cisco Systems, Inc., Lucent
Technologies, Inc., Northern Telecom Limited, Nuera Communications and Dialogic
Corp. offer or plan to offer server-based Internet telephony products. These
products are expected to allow communications over the Internet between parties
using a multimedia PC and a telephone and between two parties using telephones.
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(H) PLANNED ACQUISITIONS. There are no planned acquisitions.
(I) EMPLOYEES. As of January 31, 2000, we employed 15 full-time and 10
part-time employees. None of our employees are covered by collective bargaining
agreements.
(J) YEAR 2000. We have not experienced any "Year 2000" technical or computer
deficiencies to date, however, there may be future Y2K compliancy problems for
our vendors or suppliers that may indirectly effect the productivity of our
Company.
ITEM 2. FACILITIES.
We maintain our executive offices at 16990 Dallas Parkway Suite 106,
Dallas, Texas 75248. The facilities are used for software development. The
office size is 2,666 square feet.
ITEM 3. LEGAL PROCEEDINGS.
There are no legal or other proceedings pending against the Company, as of
the preparation of this Report, and no facts are known or suspected which would
give rise to any anticipation of any such proceedings in the foreseeable future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Certain matters were submitted to shareholders and approved on December 21,
1999:.
(1) To Ratify and Approve that certain plan of reorganization and
acquisition, Dated November 30, 1999, by which this corporation would acquire
Woodcomm International, Inc., a private Corporation, for issuance of 16,000,000
new investment shares of common stock.
(2) Approve filing of "Shelf Registration Statement" for issuance of up to
2,000,000 shares of common stock at offering price of not less than $3.00 per
share.
(3) Approve and Authorize a change of the corporate name, and change of
situs of the Corporation from Colorado to Nevada, as a part of this
Reorganization, to become and be iDial Networks Inc., a Nevada Corporation, or a
substantially similar name as may be available in Nevada.
(4) Re-Elect and empower the present Directors to appoint a new Board of
three, effective upon closing the transaction mentioned in Proposals Numbers
1-3, to then consist of the following three (3) Directors, to serve until the
next Annual Meeting of Shareholders or until their successors are elected and
qualified: Mark T. Wood, Klaus Scholz, and Edward Janusz.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND STOCKHOLDER MATTERS.
(A) MARKET INFORMATION. The Registrant Company has one class of securities,
Common Voting Equity Shares ("Common Stock"). As of the date of this Annual
Report, the securities of the Issuer may be traded over the counter, but the
market is young and sporadic. Quotations for, and transactions in the Securities
so traded are capable of rapid fluctuations, resulting from the influence of
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supply and demand on relatively thin volume. There may be buyers at a time when
there are no sellers, and sellers when there are no buyers, resulting in
significant variations of bid and ask quotations by market-making dealers,
attempting to adjust changes in demand and supply. A young market is also
particularly vulnerable to "short selling", sell orders by persons owning no
shares of stock, but intending to drive down the market price so as to purchase
the shares to be delivered at a price below the price at which the shares were
sold "short".
Of the Company's issued and outstanding 18,542,500 shares of Common Stock
as of December 31, 1999, all shares, subject to an exception for the 3,077,367
shares owned by affiliates of the Issuer, might be presently sold in compliance
with Rule 144, in brokerage transactions, at such time as there may be trading
in the common stock of this Issuer. Rule 144 provides among other things and
subject to certain limitations that a person holding "Restricted Securities" for
a period of two years, who is not an affiliate of the Issuer, may sell those
securities, free of restriction in brokerage transactions. Further, shares
issued pursuant to 1933 Act Registration, again subject to exceptions for
affiliate ownership, are not "Restricted Securities" and are freely tradeable in
brokerage transaction. Affiliates are permitted by Rule 144 to sell
affiliate-owned securities (Restricted Securities held for more than one year
and Registered Affiliate Control Securities however long held) in limited
amounts. Possible or actual sales of the Company's Common Stock under Rule 144
or otherwise might have a depressive effect upon the price of the Company's
Common Stock, at such time, if and when the common stock of this Issuer might be
tradeable in brokerage transactions.
(B) HOLDERS. Management calculates that the approximate number of holders of
the Company's Common Stock, as of December 31, 1999 was 723.
(C) DIVIDENDS. No cash dividends have been paid by the Company on its Common
Stock and no such payment is anticipated in the foreseeable future. No other
dividends have been paid or declared by the Issuer and none are anticipated.
(D) SALES OF UNREGISTERED COMMON STOCK 1999. None
(E) MARKET INFORMATION. Our Common Stock is quoted Over-The-Counter on the
Bulletin Board ("OTCBB"). The Company's trading symbol is IDNW.
<TABLE>
<CAPTION>
<S> <C> <C>
period high bid low bid
1st 1999 1.00 0.05
2nd 1999 1.05 0.10
3rd 1999 1.37 0.20
4th 1999 1.87 0.20
===========================
</TABLE>
The foregoing price information is based upon inter-dealer prices without
retail mark-up, mark-down or commissions and may not reflect actual
transactions.
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ITEM 6. SELECTED FINANCIAL DATA.
The following information is provided as of the Date of this Report:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
December 31 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------
Total Assets 617,537 0 0 0 0
Revenues 1,575,826 0 0 0 0
Operating Expenses 560,106 6,000 22,234 25,034 1,314
Net Earnings or (Loss) (650,760) (6,000) (22,234) (25,034) (1,314)
Per Share Earnings
or (Loss) (0.05) (0.00) (0.01) (0.02) (0.00)
Average Common Shares
Outstanding 14,211,267 2,074,500 1,942,500 1,942,500 690,500
=================================================================================
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .
(A) PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.
In December 1999, Desert Springs Acquisition Corporation (DSAC) acquired all of
the issued and outstanding shares of Woodcomm International, Inc. in exchange
for 15,316,000 shares of common stock of DSAC. For financial reporting purposes
the business combination was accounted for as a reverse acquisition with WCI as
the acquirer. The historical financial statements prior to the merger are those
of WCI.
The Company provides Internet-based voice telecommunication to customers around
the world.
(B) LIQUIDITY AND CAPITAL RESOURCES
The Company used cash in operations of $33,400 compared to cash used in
operations of $8,040 for 1998. This is primarily due to net losses offset by
increases in accounts payable and accounts receivable.
The Company has primarily funded investing activities through the issuance of
long-term debt and advances from Member. The Company is currently exploring
other financing alternatives.
Year ended 1999 compared to 1998
The Companys recorded loss for the year ended 1999 was $650,760 compared to
$201,447 for the year ended 1998. This $449,313 increase in the loss was
comprised of an increase in sales and gross margin significantly offset by an
increase in general and administrative expenses of $461,927 and an increase in
interest expense of $72,685.
The $1,050,893 increase in sales was due to an increase in products being
offered as well as an increase in the overall customer base. Throughout 1998
and most of 1999, the majority of the Companys sales were to one customer. The
terms of this relationship allowed for minimal gross margins on sales. Late in
1999, the Company expanded its customer base as well as its product mix. Along
with the typical Internet-based telecommunication service offered through third
parties, the Company began selling phone cards and offering web-based service.
This created more opportunity for sales as well as an increase in gross margin.
The increase in general and administrative expense is primarily attributable to
an increase of approximately $200,000 in consulting and professional fees
incurred in connection with the reorganization. Approximately $150,000 of an
increase in depreciation expense due to the increase in fixed assets and an
increase of approximately $150,000 in salaries.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to Auditors Report of December 31, 1999 filed herewith.
Those financial statements, attached thereto are incorporated herein by this
reference as though fully set forth herein. Please see the Exhibit Index found
on page 15 of this Report.
ITEM 9. CHANGE OF REGISTRANT'S AUDITOR.
This Reorganized Corporation shall have new auditors, Ehrhardt, Keefe,
Steiner & Hottman, 7079 E Tufs Ave, Suite 400, Denver Colorado 80237-24843.
There has been no disagreement with any auditor
about any item.
The Remainder of this Page is Intentionally Left Blank
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Company has assembled a team of seasoned senior management, and is currently
recruiting other industry veterans to fill key leadership roles. Additionally,
the company is augmenting its Board of Directors and Board of Advisors with
skilled executives that can aid the growth of the company through high level
access to potential customers and strategic alliance partners.
The following table sets forth certain information as of DECEMBER 31, 1999
concerning our executive officers.
NAME AGE POSITION
- --------------------------------------------------------------------------------
Mark T. Wood 40 Chairman of the Board
George V. Stein 58 CEO, President and Director (as of January
2000)
Klaus Scholz 50 Chief Operating Officer and Director
Edward J. Janusz 52 Director
MARK T. WOOD, CHAIRMAN OF THE BOARD
Mark Wood has served as managing officer since the inception (May 1997) of
Woodcomm International, predecessor to iDial Networks Inc. From 1996 to May
1997, Mr. Wood was Vice President and General Manager of Loxcomm America Inc.,
an international telecommunications company. From 1995 to 1996 he served as
chief Operating Officer of WorldQuest Networks L.L.C., a Dallas, Texas-based
international Internet Telecommunications company. From 1992 to 1995 B Vice
President, International Sales of Intellicall, Inc. (AMEX:ICL) an international
telecommunications company.
GEORGE V. STEIN, BECAME CEO, PRESIDENT AND DIRECTOR IN JANUARY OF 2000.
Mr. Stein is a 30-year veteran of the cable and telecommunications industry,
recognized as one of the top 100 most influential executives in 1998 by CableFax
Magazine. He was co-founder of Encore Media Corporation, a Liberty Media company
(NYSE:LMG) that serves in excess of 50 million subscribers with a host of
programming services including ENCORE and STARZ. Most recently, Mr. Stein was
the founder and Chief Executive Officer of Hallmark Entertainment Networks,
Inc., a Hallmark Cards company. Renamed Crown Media Holdings, Inc., (NYSE:CRWN),
the company has filed an S-1 registration and will become a billion dollar cap
entity upon completion of it's underwriting, led by DLJ. A Wharton MBA with
brand management experience at Procter and Gamble, Mr. Stein brings a unique
combination of marketing and financial skills to the VoIP industry.
KLAUS SCHOLZ, DIRECTOR AND CHIEF OPERATING OFFICER
Mr. Scholz introduced the worldwide first Internet based Payphone when he was
the Managing Director of The PayPhone Co. (PPC) on behalf of the Thai
conglomerate, Loxley PLC. A native of Germany, he served ten years at Hewlett
Packard (Country Manager South East Europe) before moving to Asia in 1987. In
14
<PAGE>
Thailand, he became the Managing Director of the publicly listed Semiconductor
Ventures International LTD. He joined that company as the Country Manager of
the German Engineering and Certification Body TUV that cooperated with the
Chinese government to improve quality and safety standards in the Taiwanese
industry
EDWARD J. JANUSZ, DIRECTOR
Mr. Janusz is a seasoned sales and operations executive serving the Company as a
Director. Mr. Janusz is Vice President of Cap Gemini, a leading worldwide IT
consulting firm serving Fortune 500 companies.
ITEM 11. EXECUTIVE COMPENSATION.
None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
COMMON STOCK
To the best of Registrant's knowledge and belief the following disclosure
presents, as of the date of this report, December 31, 1999, the total beneficial
security ownership of all Directors and Nominees, naming them, and by all
Officers and Directors as a group, without naming them, of the Company, known to
or discoverable by the Company, and the total security ownership of all persons,
entities and groups, known to or discoverable by Registrant, to be the
beneficial owner or owners of more than five percent of any voting class of
Registrant's stock. More than one person, entity or group could be beneficially
interested in the same securities, so that the total of all percentages may
accordingly exceed one hundred percent. Registrant has only one class of stock,
namely Common Voting Equity Shares.
please see table on following page
15
<PAGE>
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS AND 5% OWNERS
- --------------------------------------------------------------------------------
Name and Address of Beneficial Owner Amount and Nature Percent
of Ownership of Class
- --------------------------------------------------------------------------------
Mark T. Wood, Chairman of the Board 3,385,000 18.26
5919 Buffridge Trail
Dallas, TX 75252
- --------------------------------------------------------------------------------
George V. Stein, CEO, President and Director (1) 0 0.00
Klaus Scholz, Director and Chief Operating Officer 1,500,000 8.09
19019 Preston Road, Suite 616
Dallas, TX 75252
- --------------------------------------------------------------------------------
Edward J. Janusz, Director 50,00 0.27
7 Lacewing Place
The Woodlands, TX
- --------------------------------------------------------------------------------
All Officers and Directors as a Group 4,935,000 26.61
Mauricio Vega III 1,000,000 5.39
14910 Ridge Hill
San Antonio, TX 78233
- --------------------------------------------------------------------------------
Fostures Ventures (2) 8,000,000 43.14
5919 Buffridge Trail
Dallas, TX 75252
- --------------------------------------------------------------------------------
REXCO 1,530,133 8.25
900-609 Granville Street
P.O. Box 10341 Pacific Centre
Vancouver, BC V7Y 1H4 Canada
Total Shares Issued and Outstanding 18,542,500 100.00
================================================================================
(1) Amount of ownership is 2,500,000 shares of Mark Wood's 3,385,000 issued in
2000.
(2) Fosters Ventures is a family trust beneficially owned by Mark T. Wood.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) FINANCIAL STATEMENTS. Reference is made to Auditors Report of December
31, 1999 filed with herewith. Those financial statements, attached as Exhibit
AF@ thereto are incorporated herein by this reference as though fully set forth
herein.
(B) FORM 8-K REPORTS. A Form 8-K was filed on December 15, 1999. The Form
8-K reported the change of control of this Company, in accordance with the plan
of reorganization and acquisition, dated November 30, 1999, by which this
Company acquired Woodcomm International, Inc., a private Corporation, for
issuance of 16,000,000 new investment shares of common stock. In addition to the
change of control, certain other proposals incidental to the acquisition and
change of control are were approved: (a) filing of "Shelf Registration
Statement" for issuance of up to 2,000,000 shares of common stock at an offering
price of not less than $3.00 per share; (b) a change of the corporate name, and
change of situs of the Corporation from Colorado to Nevada, as a part of this
Reorganization, to become and be iDial Networks Inc., a Nevada Corporation, or a
substantially similar name as may be available in Nevada; (c) election of the
following three Directors, to serve until the next Annual Meeting of
Shareholders or until their successors are elected and qualified: Mark T. Wood,
Klaus Scholz, and Edward Janusz.
(C) EXHIBITS. Please see Exhibit Index, following.
EXHIBIT INDEX
FINANCIAL STATEMENTS AND DOCUMENTS
FURNISHED AS A PART OF THIS ANNUAL REPORT
EXHIBIT 1. Articles of Amendment - Desert Springs Acquisition
Corporation.
EXHIBIT 2. Articles of Amendment - iDial Networks, Inc.
EXHIBIT 3. Articles/Certificate of Share Exchange and Merger
EXHIBIT F. Audited Financial Statements - December 31, 1999.
17
<PAGE>
SUPPLEMENTARY INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report has been sent to security holders. Please see Item 4 of
Part I
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the individual capacities and on the date indicated.
December 31, 1999.
IDIAL NETWORKS, INC.
A NEVADA CORPORATION
________/s/_______ ________/s/________
Mark Wood George V. Stein
Chairman of the Board President/ Director
18
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 1
ARTICLES OF AMENDMENT
DESERT SPRINGS ACQUISITION CORP.
- --------------------------------------------------------------------------------
19
<PAGE>
ARTICLES OF INCORPORATION
OF
DESERT SPRINGS ACQUISITION CORP.
ARTICLE I. The name of the Corporation is DESERT SPRINGS ACQUISITION CORP.
ARTICLE II. Its principal office in the State of Nevada is 774 Mays Blvd. #10,
Incline Village NV 89452. The initial resident agent for services of process at
that address is N&R Ltd. Group, Inc
ARTICLE III. The purposes for which the corporation is organized are to engage
in any activity or business not in conflict with the laws of the State of Nevada
or of the United States of America. The period of existence of the corporation
shall be perpetual.
ARTICLE IV. The corporation shall have authority to issue an aggregate of
100,000,000 shares of common voting equity stock of par value one mil ($0.001)
per share, and no other class or classes of stock, for a total capitalization of
$100,000. The corporation's capital stock may be sold from time to time for such
consideration as may be fixed by the Board of Directors, provided that no
consideration so fixed shall be less than par value.
ARTICLE V. No shareholder shall be entitled to any preemptive or preferential
rights to subscribe to any unissued stock or any other securities which the
corporation may now or hereafter be authorized to issue, nor shall any
shareholder possess cumulative voting rights at any shareholders meeting, for
the purpose of electing Directors, or otherwise.
ARTICLE VI. The name and address of the Incorporator of the corporation is
William Stocker, Attorney at Law, 34700 Pacific Coast Highway, Suite 303,
Capistrano Beach CA 92624, phone (949) 248-9561, fax (949) 248-1688. The
affairs of the corporation shall be governed by a Board of Directors of not less
than one (1) nor more than (7) persons. The Incorporator shall act as Sole
Initial Director.
ARTICLE VII. The Capital Stock, after the amount of the subscription price or
par value, shall not be subject to assessment to pay the debts of the
corporation, and no stock issued, as paid up, shall ever be assessable or
assessed.
ARTICLE VIII. The initial By-laws of the corporation shall be adopted by its
Board of Directors. The power to alter, amend or repeal the By-laws, or adopt
new By-laws, shall be vested in the Board of Directors, except as otherwise may
be specifically provided in the By-laws.
20
<PAGE>
I THE UNDERSIGNED, being the Incorporator hereinbefore named for the purpose of
forming a corporation pursuant the General Corporation Law of the State of
Nevada, do make and file these Articles of Incorporation, hereby declaring and
certifying that the facts herein stated are true, and accordingly have set my
hand hereunto this Day,
December 16, 1999.
/s/
William Stocker
attorney at law
Incorporator
21
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 2
ARTICLES OF AMENDMENT
IDIAL NETWORKS INC.
- --------------------------------------------------------------------------------
22
<PAGE>
AMENDMENT TO ARTICLES OF INCORPORATION
OF
DESERT SPRINGS ACQUISITION CORP.
(BEFORE PAYMENT OF CAPITAL AND ISSUANCE OF STOCK)
WE THE UNDERSIGNED, Officers of DESERT SPRINGS ACQUISITION CORP. ("the
Corporation"), incorporated on December 17, 1999, hereby certify:
The Initial Incorporator of the Corporation at a meeting duly convened and held
on December 20, 1999 adopted a resolution to amend the Articles of Incorporation
as Originally filed and/or amended.
The former Article One read:
ARTICLE ONE. The name of the Corporation is Desert Springs Acquisition Corp.
Article One is superseded and replaced as follows:
ARTICLE ONE. The name of the Corporation is iDial Networks, Inc.
The number of shares of the Corporation outstanding is zero, and the
Incorporator is entitled to amend the Articles of Incorporation.
William Stocker
incorporator
State of California Suscribed and sworn (or affirmed) to
- ----------------------------------------------------------------
County of Orange before me this ______day of ______ 19___, by
- -----------------------------------------------------------------------
__________/s/__________
- -----------------------
Notary Public
23
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 3
ARTICLES/CERTIFICATE OF SHARE EXCHANGE AND MERGER
IDIAL NETWORKS INC.
- --------------------------------------------------------------------------------
24
<PAGE>
ARTICLES/CERTIFICATE OF SHARE EXCHANGE AND MERGER
BY WHICH
DESERT SPRINGS ACQUISITIONS CORP.
(A COLORADO CORPORATION)
FIRST ACQUIRED AND EXCHANGE WITH
WOODCOMM INTERNATIONAL INC.
(A NEVADA CORPORATION)
AND THEN MOVED ITS PLACE OF INCORPORATION TO NEVADA
BY MERGER OF THE COLORADO CORPORATION WITH AND INTO
IDIAL NETWORKS, INC.
(A NEVADA CORPORATION)
(COLORADO: CRS 7-11-107)
(NEVADA: NRS 92A.200-230)
FIRST, THE PLANS: OF REORGANIZATION AND ACQUISITION; AND OF MERGER:
(1) There are two transactions and two plans which together, and in order
constitute the acquisition, share exchange and relocation of the resulting
acquiring entity to Nevada, to join the Nevada subsidiary:
(2.1) That certain Plan of Reorganization and Acquisition, dated November 30,
1999, is attached hereto and incorporated herein by this reference as though
fully set forth herein. The Colorado parent acquires a Nevada Subsidiary.
25
<PAGE>
(2.2) That certain Plan of Reorganization and Merger for Change of Situs, dated
January 7, 2000, is attached hereto and incorporated herein by this reference as
though fully set forth herein. The former Colorado parent then moves to Nevada.
SECOND, INFORMATION RE SHAREHOLDER ACTION:
(2.1) A Special meeting of shareholders of the Colorado Corporation was duly
called upon notice to all shareholders of record on the record date. The meeting
was held on December 21, 1999. On recommendation of the Board of Directors of
the Colorado Corporation, approval was given by shareholder for the
afore-mentioned acquisition and subsequent move to Nevada, 99% of all
shareholders entitled to vote, present and voting in favor.
26
<PAGE>
(2.2) Unanimous consent by the owners of the private Woodcomm International Inc.
was given to both the acquisition and subsequent move to Nevada of the resulting
Colorado Parent.
(2.3) As to the new Nevada Corporation, iDial Networks, Inc., formerly and
originally Desert Springs Acquisitions Corp. (of Nevada), no shareholder action
was necessary, and none was possible, for the reason that no shares had been
issued. This Nevada corporation was been created solely for the purpose of this
change of situs to Nevada.
THIRD, CORPORATE AUTHORITY:
(3.1) The Plan of Reorganization and Acquisition and the performance of its
terms by the each and all of the parties and entities mentioned therein were
duly authorized by all action required by the laws under which each was
incorporated or organized and by its constituent documents, to which
representation each of the undersigned duly certifies and attests.
(3.2) The Plan of Reorganization and Merger for Change of Situs and the
performance of its terms by each and all of the parties and entities mentioned
therein were duly authorized by all action required by the laws under which
each was incorporated or organized and by its constituent documents, to which
representation each of the undersigned duly certifies and attests.
FOURTH, SIGNIFICANT PROVISIONS:
(4.1) The Colorado Corporation first acquired the private Nevada Corporation
Woodcomm International Inc. as a wholly-owned subsidiary.
(4.2) The Colorado Corporation then moved to Nevada by merger with and into
iDial Networks, Inc., a new Nevada Corporation (with no shares issued) created
for the purpose of this merger.
FIFTH, EFFECTIVE DATE:
(5) The exchange and the conversion of shares shall become effective at the
earliest date provided or allowed by law, and not later than certification by
each applicable State Official that this document has been accepted for filing
and filed.
the remainder of this page is intentionally left blank
27
<PAGE>
SIXTH SIGNING:
(6) These Articles of Exchange are signed by the duly authorized Officers of the
each applicable entity as follows:
DESERT SPRINGS ACQUISITIONS CORP. WOODCOMM INTERNATIONAL, INC.
(A COLORADO CORPORATION) (A NEVADA CORPORATION)
and
by IDIAL NETWORKS, INC.
(A NEVADA CORPORATION)
by
________/s/_________ ________/s/_________
James L. Bartel Mark T. Wood
President President
________/s/_________ _________/s/__________
Mitchell Milgaten Mark T. Wood
Secretary Secretary
28
<PAGE>
PLAN OF REORGANIZATION AND ACQUISITION DSAQ/WII
NOVEMBER 30, 1999 PAGE 248
PLAN OF REORGANIZATION AND ACQUISITION
BY WHICH
DESERT SPRINGS ACQUISITIONS CORP.
(A COLORADO CORPORATION)
SHALL ACQUIRE
WOODCOMM INTERNATIONAL INC.
(A NEVADA CORPORATION)
THIS PLAN OF REORGANIZATION AND ACQUISITION is made and dated this day of
November 30, 1999 by and between the above referenced corporations, and shall
become effective on "the Effective Date" as defined herein.
I. THE INTERESTED PARTIES
A. THE PARTIES TO THIS PLAN
1. DESERT SPRINGS ACQUISITIONS CORP. ("DSAQ"),
2. WOODCOMM INTERNATIONAL INC. ("WII"),
II. RECITALS
A. THE CAPITAL OF THE PARTIES:
1. THE CAPITAL OF DSAQ consists of 500,000,000 shares of common voting
stock of $.0001 par value authorized, of which 2,542,500 shares are issued and
outstanding.
2. THE CAPITAL OF WII consists of shares of common voting stock of $.0001
par value authorized, of which equitable ownership by its principals, nor shares
having been formally issued, is expressed as 16,000,000 shares which 16,000,000
shares are treated as if issued and outstanding, for purposes of this share
exchange.
B. THE BACKGROUND FOR THE ACQUISITION: DSAQ desires to acquire WII and the
shareholders of WII wish to be acquired by a public company.
C. THE BOARDS OF DIRECTORS of both Corporations respectively have
determined that it is advisable and in the best interests of each of them and
both of them to proceed with the acquisition by the Colorado Corporation, in
accordance with IRS ss368(a)(1)(B) and (C).
D. A MAJORITY OF SHAREHOLDERS OF DSAQ, having approved the acquisition,
this agreement was approved and adopted by the Board of Directors of DSAQ in a
manner consistent with the laws of its Jurisdiction and its constituent
documents, subject to ratification by all shareholders at meeting called for
that purpose, expected to be held on December 21, 1999.
29
<PAGE>
E. 100% OF SHAREHOLDERS OF WII, have approved the acquisition, this
agreement was approved and adopted by the Board of Directors of WII in a manner
consistent with the laws of its Jurisdiction and its constituent documents.
F. NO REVERSE SPLIT FOR 18 MONTHS: the parties have agreed and do agree,
as a material element of this Reorganization that DSAQ shall effect no reverse
split of its common stock within 18 months of the effective date hereof.
III. PLAN OF ACQUISITION
A. REORGANIZATION AND ACQUISITION: Desert Springs Acquisitions Corp. and
the Woodcomm International Inc. are hereby reorganized, as of the effective date
hereof, such that Desert Springs Acquisitions Corp. shall acquire all assets,
businesses and capital stock of the Woodcomm International Inc., and Woodcomm
International Inc. shall become a wholly-owned subsidiary of Desert Springs
Acquisitions Corp.
B. EFFECTIVE DATE: This Plan of Reorganization and Acquisition shall
become effective immediately upon approval and adoption by the parties hereto,
in the manner provided by the law of the places of incorporation and constituent
corporate documents, and the time of such effectiveness shall be called the
effective date hereof.
C. SURVIVING CORPORATION: Both corporations shall survive the
Reorganization herein contemplated and shall continue to be governed by the
laws of its respective State of Incorporation.
RIGHTS OF DISSENTING SHAREHOLDERS: DESERT SPRINGS ACQUISITIONS CORP. IS THE
ENTITY RESPONSIBLE FOR THE RIGHTS OF DISSENTING SHAREHOLDERS.
1. SERVICE OF PROCESS: DESERT SPRINGS ACQUISITIONS CORP. MAY BE SERVED WITH
PROCESS IN NEVADA IN ANY PROCEEDING FOR THE ENFORCEMENT OF THE RIGHTS OF A
DISSENTING SHAREHOLDER, IF ANY, PURSUANT TO ANY EXTENT REQUIRED BY THE LAWS
THEREOF. THE PRESIDENT OF CORPORATION HEREBY IRREVOCABLY APPOINTS THE SECRETARY
OF STATE OF COLORADO AS AGENT TO ACCEPT SERVICE OF PROCESS FOR THE NEVADA
CORPORATION WITH RESPECT TO ANY SUCH PROCEEDING TO THE EXTENT REQUIRED BY THE
LAWS THEREOF.
30
<PAGE>
2. AGENT FOR MAILING PROCESS: CORPORATION HEREBY FURTHER COMPLIES WITH
THE LAWS OF DELAWARE BY DESIGNATING A PERSON TO WHOM PROCESS SERVED UPON THE
SECRETARY OF THAT STATE MAY BE FORWARDED AND MAILED: WILLIAM STOCKER, ATTORNEY
AT LAW, 34700 PACIFIC COAST HIGHWAY, SUITE 303, CAPISTRANO BEACH CA 92624, PHONE
(949) 248-9561, FAX (949) 248-1688.
D. SURVIVING ARTICLES OF INCORPORATION: The Articles of Incorporation of
each Corporation shall remain in full force and effect, unchanged.
E. SURVIVING BY-LAWS: The By-Laws of each Corporation shall remain in full
force and effect, unchanged.
F. CONVERSION OF OUTSTANDING STOCK: Forthwith upon the effective date
hereof, Desert Springs Acquisitions Corp. shall issue 16,000,000 new investment
shares of its common stock to or for the shareholders of Woodcomm International
Inc.; and each and every share of Woodcomm International Inc. shall be converted
into one such new share of Desert Springs Acquisitions Corp.
G. FURTHER ASSURANCE, GOOD FAITH AND FAIR DEALING: The Directors of each
Company shall and will execute and deliver any and all necessary documents,
acknowledgments and assurances and to do all things proper to confirm or
acknowledge any and all rights, titles and interests created or confirmed
herein; and both companies covenant hereby to deal fairly and good faith with
each other and each others shareholders.
H. GENERAL MUTUAL REPRESENTATIONS AND WARRANTIES. The purpose and general
import of the Mutual Representations and Warranties, are that each party has
made appropriate full disclosure to the others, that no material information has
been withheld, and that the information exchanged is accurate, true and correct.
1. ORGANIZATION AND QUALIFICATION. Each Corporation warrants and
represents that it is duly organized and in good standing, and is duly qualified
to conduct any business it may be conducting, as required by law or local
ordinance.
2. CORPORATE AUTHORITY. Each Corporation warrants and represents that it
has Corporate Authority, under the laws of its jurisdiction and its constituent
documents, to do each and every element of performance to which it has agreed,
and which is reasonably necessary, appropriate and lawful, to carry out this
Agreement in good faith.
31
<PAGE>
3. OWNERSHIP OF ASSETS AND PROPERTY. Each Corporation warrants and
represents that it has lawful title and ownership of its property as reported to
the other, and as disclosed in its financial statements.
4. ABSENCE OF CERTAIN CHANGES OR EVENTS. Each Corporation warrants and
represents that there are no material changes of circumstances or events which
have not been fully disclosed to the other party, and which, if different than
previously disclosed in writing, have been disclosed in writing as current as is
reasonably practicable.
5. ABSENCE OF UNDISCLOSED LIABILITIES. Each Corporation warrants and
represents specifically that it has, and has no reason to anticipate having, any
material liabilities which have not been disclosed to the other, in the
financial statements or otherwise in writing.
6. LEGAL PROCEEDINGS. Each Corporation warrants and represents that there
are no legal proceedings, administrative or regulatory proceedings, pending or
suspected, which have not been fully disclosed in writing to the other.
7. NO BREACH OF OTHER AGREEMENTS. Each Corporation warrants and represents
that this Agreement, and the faithful performance of this agreement, will not
cause any breach of any other existing agreement, or any covenant, consent
decree, or undertaking by either, not disclosed to the other.
8. CAPITAL STOCK. Each Company warrants and represents that the issued and
outstanding shares and all shares of capital stock of such corporation, is as
detailed herein, that all such shares are in fact issued and outstanding, duly
and validly issued, were issued as and are fully paid and non-assessable shares,
and that, other than as represented in writing, there are no other securities,
options, warrants or rights outstanding, to acquire further shares of such
Corporation.
32
<PAGE>
9. BROKERS' OR FINDER'S FEES. Each Corporation warrants and represents
that it is aware of no claims for brokers' fees, or finders' fees, or other
commissions or fees, by any person not disclosed to the other, which would
become, if valid, an obligation of either company.
IV. Miscellaneous Provisions
1 At the closing date, there shall be no undisclosed changes from that
reflected in the financial and other statements exchanged by the parties.
2 Except as required by law, no party shall provide any information concerning
the Subject Property or any aspect of the transactions contemplated by this
Agreement to anyone other than their respective officers, employees and
representatives without the prior written consent of the other parties hereto.
The aforesaid obligations shall terminate on the earlier to occur of (a) the
Closing, or (b) the date by which any party is required under its articles or
bylaws or as required by law, to provide specific disclosure of such
transactions to its shareholders, governmental agencies or other third parties.
In the event that the transaction does not close, each party will return all
confidential information furnished in confidence to the other.
3 This Agreement may be executed simultaneously in two or more counterpart
originals. The parties can and may rely upon facsimile signatures as binding
under this Agreement, however, the parties agree to forward original signatures
to the other parties as soon as practicable after the facsimile signatures have
been delivered.
4 The Parties to this agreement have no wish to engage in costly or lengthy
litigation with each other. Accordingly, any and all disputes which the parties
cannot resolve by agreement or mediation, shall be submitted to binding
arbitration under the rules and auspices of the American Arbitration
Association, as a further incentive to avoid disputes, each party shall bear its
own costs, with respect thereto, and with respect to any proceedings in any
court brought to enforce or overturn any arbitration award. This provision is
expressly intended to discourage litigation and to encourage orderly, timely and
economical resolution of any disputes which may occur.
5 If any provision of this agreement or the application thereof to any person
or situation shall be held invalid or unenforceable, the remainder of the
Agreement and the application of such provision to other persons or situations
shall not be effected thereby but shall continue valid and enforceable to the
fullest extent permitted by law.
6 No waiver by any party of any occurrence or provision hereof shall be deemed
a waiver of any other occurrence or provision.
7 The parties acknowledge that both they and their counsel have reviewed and
revised this agreement and that the normal rule of construction shall not be
applied to cause the resolution of any ambiguities against any party
presumptively. The Agreement shall be governed by and construed in accordance
with the laws of the State of Nevada.
8. The parties acknowledge that they have agreed to and contemplate later
corporate action by which the Resulting Colorado Corporation shall merge with
and into a new Nevada Corporation, for the purpose of changing the corporate
name and place of incorporation.
This Plan of Reorganization and Merger is executed on behalf of each
Company by its duly authorized representatives, and attested to, pursuant to the
laws of its respective place of incorporation and in accordance with its
constituent documents.
DESERT SPRINGS ACQUISITIONS CORP. WOODCOMM INTERNATIONAL, INC.
(A COLORADO CORPORATION) (A NEVADA CORPORATION)
by by
________/s/_______ _______/s/_______
James L. Bartel Mark T. Wood
President President
_______/s/_______ _______/s/_______
Mitchell Milgaten Mark T. Wood
Secretary Secretary
33
<PAGE>
PLAN OF MERGER FOR CHANGE OF SITUS PAGE 16
BY WHICH
DESERT SPRINGS ACQUISITIONS CORP.
(A COLORADO CORPORATION)
WILL MERGE WITH AND INTO
IDIAL NETWORKS, INC.
(A NEVADA CORPORATION)
FOR THE PURPOSE OF CHANGING THE PLACE OF INCORPORATION
34
<PAGE>
THIS PLAN OF REORGANIZATION is made and dated this day of January 7, 2000,
by and between the above referenced corporations, sometimes referred to herein
as "the Public Company" and "the Private Company"" respectively.
I. RECITALS
A. THE PARTIES TO THIS AGREEMENT
1. DESERT SPRINGS ACQUISITIONS CORP. ("the Public Company") is a Colorado
Corporation. It has recently acquired Woodcomm International Inc., a private
Nevada Corporation, as a wholly-owned subsidiary.
2. IDIAL NETWORKS, INC. ("the Private Company") is a Nevada Corporation,
having been created originally as Desert Springs Acquisitions Corp. (of Nevada)
for the purpose of changing the place of incorporation of the Colorado
corporation to Nevada .
B. THE CAPITAL OF THE PARTIES:
1. THE CAPITAL OF THE PUBLIC COMPANY consists of 500,000,000 shares of
common voting stock of $.0001 par value authorized, of which 18,542,500 shares
are issued and outstanding. There were 2,542,500 shares issued and outstanding,
immediately before the acquisition of Woodcomm International Inc. (a Nevada
Corporation) as a wholly-owned subsidiary of the Public Company, 16,000,000
shares having been issued for that acquisition.
35
<PAGE>
2. THE CAPITAL OF THE PRIVATE COMPANY consists of 100,000,000 shares of
common voting stock of $0.001 par value authorized, of which no shares have been
or are issued or outstanding.
C. THE DECISION TO REORGANIZE TO CHANGE SITUS: The Parties have resolved,
following the acquisition of Woodcomm International Inc. (a Nevada Corporation),
to merge and relocate the place of incorporation of the Public Parent Company,
by means of the following reorganization, by which the Public Company will merge
with and into the Private Company and move to Nevada. As an intended result of
this change of situs, the Parent Public Corporation shall be located and
incorporated in the same State as its principal wholly-owned Subsidiary.
II. PLAN OF REORGANIZATION
A. CHANGE OF SITUS: The Public Company (Colorado) and the Private Company
(Nevada) are hereby reorganized for the sole and singular purpose of changing
the place of incorporation of the Public Desert Springs Acquisitions Corp.; such
that immediately following the Reorganization the Colorado Public Company will
move to Nevada.
1. THE PUBLIC COMPANY: Desert Springs Acquisitions Corp. of Colorado will
merge with and into and thereafter be iDial Networks, Inc. of Nevada. The Public
Company will retain its corporate personality and status, and will continue its
corporate existence uninterrupted, in and through, and only in and through the
new Nevada Corporation.
2. CONVERSION OF OUTSTANDING SHARES: Forthwith upon the effective date
hereof, each and every one share of stock of the Public Colorado Company shall
be converted to one share of the Nevada Company. Any such holders of shares may
surrender them to the transfer agent for common stock of the Public Colorado
Company, which transfer agent shall remain and continue as transfer agent for
the Nevada Company.
3. EFFECTIVE DATE: This Plan of Reorganization shall become effective
immediately upon approval and adoption by Corporate parties hereto, in the
manner provided by the law of its place of incorporation and its constituent
corporate documents, the time of such effectiveness being called the effective
date hereof.
36
<PAGE>
4. SURVIVING CORPORATIONS: The Nevada Company shall survive the
Reorganization after Reorganization, with the operational history of the
Colorado Company before the Reorganization, and with the management, duties and
relationships to its shareholders unchanged by the Reorganization and with all
of its property and with its shareholder list unchanged. The Colorado Company
shall not survive the merger.
5. FURTHER ASSURANCE, GOOD FAITH AND FAIR DEALING: the Directors of each
Company shall and will execute and deliver any and all necessary documents,
acknowledgments and assurances and do all things proper to confirm or
acknowledge any and all rights, titles and interests created or confirmed
herein; and both companies covenant hereby to deal fairly and in good faith with
each other and each others shareholders.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
37
<PAGE>
III. SIGNING
This Reorganization Agreement is executed on behalf of each Company by its
duly authorized representatives, and attested to, pursuant to the laws of its
respective place of incorporation and in accordance with its constituent
documents.
DESERT SPRINGS ACQUISITIONS CORP. IDIAL NETWORKS, INC
(A COLORADO CORPORATION) (A NEVADA CORPORATION)
by by
_______/s/______ _______/s/_____
James L. Bartel Mark T. Wood
______/s/_______ _______/s/______
James L. Bartel Mark T. Wood
President President
______/s/________ _______/s/_______
Mitchell Milgaten Mark T. Wood
Secretary Secretary
38
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT F
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
39
<PAGE>
IDIAL NETWORKS, INC.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1999 AND 1998
40
<PAGE>
IDIAL NETWORKS, INC.
TABLE OF CONTENTS
Page
Independent Auditors' Report F - 1
Financial Statements
Balance Sheets F - 2
Statement of Accumulated Deficit F - 3
Statements of Operations and Accumulated Deficit F - 4
Statements of Cash Flows F - 5
Notes to Financial Statements F - 6
41
<PAGE>
F - 1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
iDial Networks, Inc.
Dallas, Texas
We have audited the accompanying balance sheet of iDial Networks, Inc as of
December 31, 1999 and 1998, and the related statements of operations,
accumulated deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of iDial Networks, Inc. as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's history of operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
__________________/s/___________________
Ehrhardt Keefe Steiner & Hottman PC
March 6, 2000
Denver, Colorado
42
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 11,481 $ 118,493
Accounts receivable - trade 26,614 87,149
Receivable (Note 7) 100,000 -
-------------- ----------
Total current assets 138,095 205,642
Property and equipment, net (Note 2) 255,587 353,914
Other assets
Intangibles 215,000 -
Deposits 8,855 11,009
Loan origination costs, net of accumulated amortization of $1,235
- 16,765
-------------- ----------
Total assets $ 617,537 $ 587,330
============== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt (Note 3) $ 96,416 $ 10,252
Advances from stockholder's (Note 5) 119,100 186,844
Accounts payable 437,445 175,221
Accrued consulting fees (Note 4) 55,000 -
Accrued wages 25,000 40,000
Accrued interest - 17,969
-------------- ----------
Total current liabilities 732,961 430,286
Long-term debt, net of current portion (Note 3) 148,385 450,793
-------------- ----------
Total liabilities 881,346 881,079
Commitments and contingencies (Notes 3 and 4)
Equity (Note 7)
Common stock, $.01 par value, 100,000,000 shares authorized, 18,542,500 shares issued and outstanding
185,425 -
Additional paid in capital 495,575 -
Members' capital - 300
Accumulated deficit (944,809) (294,049)
-------------- ----------
Total stockholders' equity deficit (263,809) (293,749)
-------------- ----------
Total liabilities and stockholders' deficit $ 617,537 $ 587,330
============== ==========
</TABLE>
See notes to financial statements.
F - 3
43
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
For the Years Ended
December 31,
---------------------
1999 1998
--------------------- ------------
Sales $ 1,575,826 $ 524,933
Cost of sales 1,478,703 513,109
--------------------- ------------
Gross profit 97,123 11,824
Selling, general and administrative expenses 657,229 195,302
--------------------- ------------
Operating loss (560,106) (183,478)
Interest expense (90,654) (17,969)
--------------------- ------------
Net loss $ (650,760) $ (201,447)
===================== ============
Net loss per share - basic $ (.05) $ (.02)
===================== ============
Net loss per share - diluted $ (.05) $ (.02)
===================== ============
Weighted average shares outstanding 14,211,267 14,211,267
===================== ============
</TABLE>
44
<PAGE>
F - 4
STATEMENT OF ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Members'Capital Additional
Common Stock Paid-in Accumulated
-------------
Amount Shares Amount Capital
----------------- ------------- ----------- -------------
Balance December 31, 1997 $ 300 - $ - $ -
Net loss - - - -
----------------- ------------- ----------- ------------
Balance, December 31, 1998 300 - - -
Reorganization (Note 1) (300) 1,000 1 299
Issuance of common stock in exchange for accrued wages (Note 1)
- 11,300,000 11,300 153,700
Issuance of common stock for consulting services (Note 1)
- 4,015,000 40,150 22,850
Exchange of common stock - 2,541,500 127,124 (127,124)
Stock issued for retirement of debt (Note 7) 85,000 850 55,250
Stock issued for fixed assets (Note 7) - 190,000 1,900 123,100
Stock issued for intangible asset (Note 7) - 250,000 2,500 162,500
Stock issued for consulting services (Note 7) - 10,000 100 6,500
Stock issued for cash (Note 7) - 150,000 1,500 98,500
Net loss - - - -
----------------- ------------- ----------- -------------
Balance, December 31, 1999 $ - $ 18,542,500 $ 185,425 $ 495,575
================= ============= =========== =============
<S> <C> <C>
Total Stockholders'
Deficit (Deficit)
--------------------- ----------
Balance December 31, 1997 $ (92,602) $ (92,302)
Net loss (201,447) (201,447)
--------------------- ----------
Balance, December 31, 1998 (294,049) (293,749)
Reorganization (Note 1) - -
Issuance of common stock in exchange for accrued wages (Note 1)
- 165,000
Issuance of common stock for consulting services (Note 1)
- 63,000
Exchange of common stock - -
Stock issued for retirement of debt (Note 7) - 56,100
Stock issued for fixed assets (Note 7) - 125,000
Stock issued for intangible asset (Note 7) - 165,000
Stock issued for consulting services (Note 7) - 6,600
Stock issued for cash (Note 7) - 100,000
Net loss (650,760) (650,760)
--------------------- ----------
Balance, December 31, 1999 $ (944,809) $(263,809)
===================== ==========
</TABLE>
45
<PAGE>
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
1999 1998
- --------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $(650,760) $(201,447)
Adjustments to reconcile net loss to net cash provided by used in operating
activities
Write off of accrued interest 60,000 0
Stock issued for consulting services 69,600 0
Write off of loan acquisition costs 16,765 0
Depreciation and amortization 113,333 47,366
Changes in assets and liabilities
Accounts receivable (109,562) (87,149)
Accounts payable 317,224 175,221
Accrued expenses 150,000 57,969
================================================================================
617,360 193,407
Net cash used in operating activities (33,400) (8,040)
Cash flows from investing activities
Purchase of property and equipment (26,651) (21,535)
Deposits 2,154 (11,009)
Net cash used in investing activities (24,497) (32,544)
Cash flows from financing activities
Proceeds from issuance of long-term debt 35,000 83,614
Payments on long-term debt (16,371) (1,079)
Net (repayments to) advances from member (67,744) 94,542
Loan origination cost 0 (18,000)
Net cash (used in) provided by
financing activities (49,115) 159,077
(Decrease) increase in cash (107,012) 118,493
Cash, beginning of year 118,493 0
Cash, end of year $ 11,481 $ 118,493
================================================================================
Supplemental disclosure of cash flow information:
Cash paid for interest was $30,654 and $0 for the years ended December 31,
1999 and 1998, respectively.
Continued on next page.
46
<PAGE>
STATEMENTS OF CASH FLOWS
Continued from previous page.
Supplemental disclosure of noncash investing activity:
During the years ended December 31, 1999 and 1998, $169,601 and $378,570 of
office equipment was financed by capital lease obligations.
Prior to the reverse acquisition, 11,300,000 shares of common stock were
issued to the sole stockholder in exchange for forgiveness of $165,000 of
accrued wages. In addition, 4,165,000 shares of common stock were issued for
$63,000 in consulting services.
During the year ended December 31, 1999, the Company transferred common
stock effecting assets and liabilities as follows:
<TABLE>
<CAPTION>
<S> <C>
Description Fair Value
- ------------------------------------------------------------------------ ------------
Acquisition of intangible assets $ 215,000
Acquisition of fixed assets 125,000
Settlement of notes payable 404,474
Impairment of equipment (306,246)
Forgiveness of accounts receivable in connection with stock transactions
(170,097)
Settlement of accrued interest 77,969
Receivable for common stock issuance 100,000
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Organization and Business
In April 1999, Woodcomm, LLC was reorganized changing from an LLC to a Nevada
Corporation, Woodcomm International, Inc. (WCI).
In December 1999, Desert Springs Acquisition Corporation (Desert Springs)
acquired all of the issued and outstanding common shares of WCI in exchange for
15,316,000 shares of common stock of Desert Springs. For financial reporting
purposes, the business combination was accounted for as an additional
capitalization of the Company (a reverse acquisition with WCI as the acquirer).
WCI is considered the surviving entity. The historical financial statements
prior to the merger are those of WCI. Desert Springs only assets and
liabilities consisted of a liability for $80,346. The liabilities were not
assumed in the merger.
In January 2000, Desert Springs Acquisition Corp moved its state of
incorporation to Nevada by merger of the Colorado corporation with and into
iDial Networks, Inc. (a Nevada corporation). The predecessor Company, Woodcomm,
LLC was established in May 1997 in the state of Nevada. The Company began
commercial operations in June 1998 as a facilities-based wholesale provider of
international long-distance telephone services into South East Asia from the
United States.
The Company is providing Internet-based voice telecommunication to customers
around the world. It operates selected communication services, including phone
cards and Internet enabled telephony. The Internet triggered calls combine the
flexibility of a computer (on-line billing and call records) with the low
tariffs of USA based carriers via calling centers or direct from home anywhere
in the world.
Continued Operations and Realization of Assets
The accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has suffered losses
from operations since inception, resulting in an accumulated deficit of
approximately $944,809 at December 31, 1999.
The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
48
<PAGE>
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentration of credit
risk consist primarily of cash and accounts receivable. Additionally, the
Company maintains cash balances in bank deposit accounts which, at times, may
exceed federally insured limits. During the year ended December 31, 1998,
predominantly all of the Company's sales were generated from one company. At
December 31, 1998, receivables consisted of $82,614 or 95% of its total accounts
receivable - trade was due from this company, respectively.
Loan Origination Fees
The December 31, 1998 loan origination fees were direct costs incurred for the
origination of loans that were deferred and amortized to interest expense using
the interest method over the contractual terms of the loans. During 1999, the
loan origination fees were expensed in connection with the settlement of the
related debt through the transfer of common stock.
Advertising Costs
The Company expenses advertising costs as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost; equipment under capital lease is
stated at the lower of fair market value or net present value of minimum lease
payments at inception of the leases. Depreciation is computed using the
straight-line method over the estimated useful lives or lease terms of the
related assets of three to five years.
Intangible Asset
Intangible asset consists of trademarks and rights of a particular phone card
and is stated at cost. Amortization is computed using the straight line over
the estimated useful life other asset of five years.
49
<PAGE>
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
Revenue Recognition
Revenue is recognized upon the completion of long distance telephone service
based on the duration of the telephone call.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value as of
December 31, 1999, as a result of the relatively short maturity of these
instruments.
The fair value of the notes receivable approximate the carrying value as both
and stated rate and discount rate on the notes approximate the estimated current
market rate.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recovered. The Company looks primarily to the undiscounted future cash flows
in its assessment of whether or not long-lived assets have been impaired. At
December 31, 1999, the Company determined no impairment was appropriate.
Income Taxes
During 1998, the Company was organized as an LLC. No tax was paid by the LLC as
each member is allocated their respective share of the Company's income or loss
for the year in accordance with federal and state tax laws. Accordingly, no tax
provision is included in the financial statements for the year ended December
31, 1998.
Effective April 1999, the Company was reorganized, changing from an LLC to a
Corporation. As a result, the Company recognizes deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statements and tax basis of assets and liabilities using
the enacted tax rates in effect for the year in which the differences are
expected to reverse. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
are not expected to be realized.
50
<PAGE>
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
Basic and Diluted Net Loss Per Share
The Company computes net loss per share in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions
of SFAS 128 and SAB 98, basic and diluted net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding for the period.
Recently Issued Accounting Pronouncements
During April 1998, Statement of Position 98-5, "Reporting in the Costs of
Start-Up Activities" was issued. SOP 98-5 was required to be adopted by the
first quarter of 1999. The Company had no effect on operations upon adoption of
SOP 98-5.
- --------------------------------------------------------------------------------
NOTE 2 - PROPERTY AND EQUIPMENT
- --------------------------------------------------------------------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 1998
-------------- ---------
Telephony equipment $ 137,158 $288,974
Computers, equipment and software 277,893 111,071
-------------- ---------
415,051 400,045
Less accumulated depreciation (159,464) (46,131)
-------------- ---------
$ 255,587 $353,914
============== =========
</TABLE>
- --------------------------------------------------------------------------------
NOTE 3 - LONG-TERM DEBT
- --------------------------------------------------------------------------------
NOTE 3 - LONG-TERM DEBT
- ---------------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
-------------
1999 1998
------------- -----
Note payable, interest at 12.9%, due in monthly installments
of approximately $795, commencing July 1999 through
maturity of June 2004.
$ 31,776 $ -
</TABLE>
51
<PAGE>
NOTE 3 - LONG-TERM DEBT (CONTINUED)
- ----------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 1998
------------- --------
Capital leases with monthly installments totaling $3,295
including interest at 23% and expiring December 2001
through August 2003. Collateralized by equipment with a
net book value of approximately $178,000 and $55,000 at
December 31, 1999 and 1998, respectively. 213,025 56,571
Various note payables issued for acquisition of equipment,
paid during 1999 with the issuance of common stock. - 404,474
$ 244,801 $461,045
============= ========
</TABLE>
NOTE 3 - LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Long-Term Capital
Year Ending December 31, Debt Leases Total
- ----------------------------------- ----------- --------- ---------
2000 $ 5,035 $135,869 $140,904
2001 6,458 94,369 100,827
2002 7,342 14,932 22,274
2003 8,348 8,237 16,585
2004 4,593 - 4,593
======================================================================
31,776 253,407 285,183
Less amount representing interest - (40,382) (40,382)
======================================================================
31,776 213,025 244,801
Less current maturities (5,035) (91,381) (96,416)
----------- --------- ---------
$ 26,741 $121,644 $148,385
=========== ========= =========
</TABLE>
The net book value of assets under capital lease was approximately $178,000 and
$55,000 as of December 31, 1999 and 1998, respectively.
NOTE 4 - COMMITMENTS
The Company leases office space and furniture and equipment under operating
leases which expire February 2000 through July 2002.
52
<PAGE>
NOTE 4 - COMMITMENTS (CONTINUED)
Future minimum obligations under the non-cancelable operating leases at December
31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31,
2000 $110,320
2001 74,176
2002 3,155
--------
$187,651
========
</TABLE>
Rent expense under the operating leases was $41,954 and $30,275 for the years
ended December 31, 1999 and 1998, respectively.
NOTE 5 - SHAREHOLDER ADVANCE
In 1998, the Company received advances from a shareholder to fund operations.
The advances are non interest bearing and payable on demand. As of December 31,
1999 and 1998, the advances from stockholder totaled $119,100 and $186,844,
respectively.
NOTE 6 - INCOME TAXES
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $626,000 which expires in 2014.
The Company has recorded a long-term deferred tax asset for the net operating
loss of approximately $244,000 at December 31, 1999, and has provided a 100%
valuation allowance on the deferred tax asset due to uncertainty as to the
ultimate utilization of the net operating loss carryforwards.
NOTE 7 - STOCK TRANSACTIONS
Prior to the reverse acquisition, the stockholder of WCI was issued 11,300,000
shares of common stock in exchange for $165,000 of accrued wages. Additionally,
various consultants were issued common stock in exchange for services. The fair
market value of the common stock on the date of these issuances was determined
based on the consideration received as that amount was more readily determinable
and reliably measurable than the fair market value of the common stock
transferred.
53
<PAGE>
NOTE 7 - STOCK TRANSACTIONS (CONTINUED)
In December 1999, subsequent to the reverse acquisition, the Company issued
common shares in exchange for debt, to acquire various assets and in payment of
consulting services. In December 1999, the fair market value of the common
stock on the date of these issuances was determined to be $.66 based on the
issuance of 150,000 common shares of stock for $100,000 in December 1999.
The various stock transactions which occurred in December 1999 are as follows:
The Company issued 85,000 shares of common stock to an equipment vendor and
customer in exchange for satisfaction of a note payable and related accrued
interest totaling $482,443. This amount was netted with the accounts receivable
balance due the Company which totaled $120,097. The related equipment's
acquisition cost was reduced by approximately $306,000 as a result of this
transaction.
The Company issued 250,000 shares of common stock in exchange for an intangible
asset. In connection with this transaction, the Company also settled an
accounts receivable balance of $50,000. The fair value of the intangible asset
was determined to be $215,000 and is reflected in the accompanying financial
statements.
A consultant was granted 200,000 shares of common stock in exchange for
equipment with a fair value of $125,000 and consulting services. The
accompanying financial statements reflect $6,600 of consulting expense and the
fair value of the equipment as a result of this transaction.
In December 1999, the Company agreed to transfer 150,000 shares of common stock
in exchange for $100,000. This amount was received in full in January 2000.
